AUD/USD Analysis: Descending channel favours bearish traders, 0.6765-60 area holds the key

The AUD/USD pair once again showed resilience near the 0.6765-0.6760 region and attracted some buying during the Asian session on Thursday. The uptick assisted spot prices to snap a two-day losing streak to the lowest level since June 2020 and was sponsored by a combination of factors. Strong Australian trade balance data, along with recovery in iron ore, offered some support to the resources-linked aussie. Adding to this, signs of stability prompted some profit-taking around the safe-haven US dollar and further benefitted the risk-sensitive aussie, though any meaningful upside still seems elusive.

Recession fears remain the key theme, which might keep a lid on any optimistic move in the markets. Apart from this, more aggressive Fed rates hike expectations should limit the USD corrective slide and also contribute to capping gains for the AUD/USD pair, at least for the time being. The prospects for a faster policy tightening by the Fed were reaffirmed by the unsurprisingly hawkish minutes of the FOMC meeting on June 14-15. Policymakers emphasized the need to fight inflation even if it meant slowing an economy and indicated that another 50 or 75 bps rate hike is likely at the July meeting.

Investors also seemed reluctant and might prefer to wait on the sidelines ahead of the release of the closely-watched US monthly jobs report - popularly known as NFP due on Friday. In the meantime, traders will take cues from Thursday’s release of the US Weekly Initial Jobless Claims. Apart from this, Fed Governor Christopher Waller and St. Louis Fed President James Bullard's scheduled speeches would influence the USD price dynamics later during the early North American session. This, along with the broader market risk sentiment, would provide some trading impetus to the AUD/USD pair.

Technical outlook

From a technical perspective, the recent downfall since mid-June has been along a downward sloping trend channel and points to a well-established short-term bearish trend. That said, repeated bounce from the 0.6765-0.6760 area warrants caution before positioning for any further losses. Meanwhile, any subsequent move up is likely to confront stiff resistance near the top end of the descending channel, currently around the 0.6870 region. Sustained strength beyond would suggest that the AUD/USD pair has formed a near-term bottom and prompt an aggressive short-covering move. Spot prices might then surpass the 0.6900 round-figure mark and aim to test the next relevant hurdle near the 0.6955-0.6960 supply zone.

On the flip side, the 0.6765-0.6760 area might continue to protect the immediate downside ahead of the descending channel support, around the 0.6715-0.6710 region. This is closely followed by the 0.6700 mark, which if broken decisively would be seen as a fresh trigger for bearish traders. The AUD/USD pair might then accelerate the fall towards the next relevant support near the 0.6655-0.6650 region.